LONDON, Jan 20 (Reuters) - Britain will set out plans
next week to crack down on executive pay to try to address
public outrage over huge wages for "fat cats" at a time of deep
public spending cuts and fears of a looming recession.

Prime Minister David Cameron said a market failure during
years of uncontrolled "turbo capitalism" had broken the link
between risk and reward, giving some executives generous pay
deals despite lacklustre performance.

Politicians from all parties have fought to take the lead in
the pay reforms as Britons feel the pain from a government
austerity drive, unemployment at a 17-year high and
below-inflation wage rises for most workers.

Top UK directors' total pay soared by almost 50 percent last
year, despite an economic slowdown and only moderate growth at
leading companies, according to research by Incomes Data
Services, part of Thomson Reuters.

"There should be a proper, functioning market for talent at
the top of business," said Cameron, who leads the centre-right
Conservatives, the dominant partner in Britain's coalition
government. "We need to make the market work and we will do that
by empowering shareholders and using the power of transparency."

Anger over pay, especially in the financial sector, grew
during the 2007-08 credit crisis when Britain nationalised
Northern Rock bank and pumped 66 billion pounds ($102 billion)
into Lloyds and Royal Bank of Scotland.

Protesters inspired by the Occupy Wall Street demonstrations
in New York are still camped outside St Paul's Cathedral in the
City of London financial district, more than three months after
they first pitched their tents. They are campaigning against
social inequality and corporate greed.

The centre-left opposition Labour Party, which lost power
after 13 years in 2010, has accused the Conservatives of talking
tough on pay, but failing to act.

Describing the issue as one of the main battlegrounds in
British politics, Labour leader Ed Miliband said: "I frankly
don't believe that this prime minister is serious about this
agenda."

SHAREHOLDER POWER

The government's plans are due out on Tuesday, a day before
official data are expected to show Britain's gross domestic
product contracted by 0.1 percent at the end of last year.

The measures are likely to include new powers for
shareholders to hold binding rather than advisory votes on
directors' wages.

Cameron has talked of stopping the "merry-go-round" of
executives sitting on each other's remuneration panels, awarding
themselves big pay deals even when their company has struggled.

The prime minister has refused to rule out new laws forcing
companies to put a workers' representative on pay boards,
although such a move is seen as unlikely. Under existing laws,
the staff representative would have to become a director to sit
on the pay board.

A government official said final details were still being
decided. The proposals were likely to focus on plans for greater
transparency, requiring shareholders to approve remuneration
packages and increasing the diversity of the membership of
company boards, the official added.

The Institute of Directors, a lobby group with 43,000
members, said bosses' pay rises were unsustainable, but it
favoured having a broader mix of non-executive directors on
company boards rather than giving shareholders a binding vote on
pay.

"Once a remuneration award has been announced by a board, it
is too late for shareholders to intervene with an absolute
veto," it said in its response to the government proposals.

A Reuters poll of 10 UK-based fund managers earlier this
month showed most think the new measures are flawed. Eight out
of 10 said giving shareholders a vote on executive pay would not
work.